Managing Your Money

Help Your New Grad Save with These Financial Gifts

The end of the school year is a blur of activity, between field days and recitals and final exams and spring sports banquets. It also means parents, grandparents, relatives and family friends are searching for the perfect gift to celebrate the milestone of graduation.

The National Retail Federation recently reported that the average person will spend $102.51 this year on a graduation gift. Total spending is expected to reach $5.2 billion, following the record $5.6 billion set last year. Cash is the most popular gift, followed by greeting cards, gift cards and apparel.

Why not break away from tradition and give grads a gift that will last longer than a few trips to Starbucks? Presents that go beyond cash can help set graduates on the right financial track.

Education SavingsIt’s not uncommon to attend graduations for preschoolers, kindergartners or middle-schoolers who are moving on to the next stage. Starting a 529 Plan or contributing to an existing one would be an appropriate way to mark these occasions. Funding a plan makes a great gift for young students, because compound earnings make it easier to build a strong college fund when the money is added early on. But students who just graduated from high school still have time to benefit. Parents, grandparents and even generous aunts and uncles are eligible to contribute.

InvestmentsIf your grad is really into a certain brand—think Apple, Netflix or Nike—consider purchasing a share or two as a gift. She can track the value of the stock over time and will learn a valuable lesson about how the stock market works. Or you could open a brokerage account for the graduate and fund it with an initial amount that he could use to invest in companies of interest.

Retirement ContributionsRetirement is the furthest thing on a new grad’s mind, but that’s all the more reason they could use a boost in this department. Contributing to a Roth IRA is a good choice for college graduates who expect to find a job within a few months. They can put as much as $5,500 a year in a Roth (if they earn that much from a job), but the money used to fund the account can be a gift. The contributions grow tax-free and can be withdrawn tax-free in retirement. Another option is to match the graduate’s contributions up to a set amount for a few years to give them even more incentive for saving.

Paying off DebtConsider helping pay off a chunk of student loans for recent college graduates. The extra help during the six-month grace period after graduation could result in lower monthly payments or a faster payoff. Registries exist that let you purchase gift cards that grads can redeem directly into their student loan account.

Cash is king when it comes to graduation presents, but if you want to make sure your gift helps form a foundation for future success, consider these options. The special student in your life will remember the gesture for a long time.

Bob Johnson is a financial advisor based at Pinnacle’s Seven Oaks office in Knoxville. He can be reached at [email protected] or by calling (865) 602-3610.